The State Bank of Pakistan launches Electronic Money Institutions Regulations

The Regulations begin by noting that '[t]raditionally, payment instruments in Pakistan are issued by banks without participation of non-banking entities', but that 'new technological innovations are now enabling [the] non-banking sector to deliver innovative and efficient payment services to consumers at much lower cost'.

The stated aim of the Regulations is 'removing entry barriers for non-banking entities by providing them a guiding as well as an enabling regulatory framework for the establishment and operations of EMIs in Pakistan'.

Notwithstanding a desire to promote digital payments and financial inclusion, the Regulations also note the potential risks to investors and seek to ensure consumer protection in line with the country's legal framework.

The Regulations define EMIs as 'non-banking entities duly authorized to issue means of payments in the form of electronic money (e-money)', for example such entities 'that offer innovative, user-friendly and cost effective low value digital payment prepaid instruments like wallets, prepaid cards, and contactless payment instruments including wearables'. Such EMIs will be licensed by the SBP to issue e-money for the purpose of digital payments.

The definition of 'e-money' is set out in the Payment Systems and Electronic Funds Transfer Act, 2007, as 'monetary value stored on an electronic device or payment instrument issued on receipt of funds and accepted as a means of payment by entities other than issuer'.

Federal Minister for Finance, Revenue and Economic Affairs, Mr. Asad Umar, stated that it is the Government of Pakistan's policy "to encourage the use of e-commerce amongst [the] public through awareness campaigns to promote a culture of e-commerce in the country, which supports electronic business transactions at national, regional and international levels.”

Coming less than a year after a complete ban on cryptocurrencies, Mr Umar stressed the importance of cyber security, which poses an increasing threat to financial institutions.

The Deputy Governor of the SBP, Mr. Jameel Ahmad, highlighted the SBP’s aim to transform itself into a 'modern, digital and fully technology oriented central bank' with a strategy to embrace technology and innovation in digitizing banking & payments.

Stating that EMIs will offer innovative digital payment solutions and services, it was highlighted that that the regulations also cover other regulatory requirements including 'outsourcing activities, AML/CFT, consumer protection, complaint handling mechanism, oversight and regulatory reporting etc'.